Revisiting IPOs in London

Tougher times but some encouraging signs

In total, 126 companies listed on the London Stock Exchange in 2021, with 66 on AIM and 60 on the main board, the strongest showing since 2014. This raised £16.8bn, of which c £3.2bn was raised for AIM companies. Only the US and Chinese markets saw more capital raised for new listings in 2021. That year also saw a very strong market for follow-on offerings, with £32.4bn being raised by issuers, £6.2bn of this raised on AIM. This activity was coupled with political and regulatory pushes to make London more competitive as a listing destination, which we detailed in our IPO boom in London report of November 2021. Six months from this last report and the new issues have been subdued by markets retreating in the face of rising inflation and interest rates accompanied by the Russian invasion of Ukraine. Q122 saw 19 companies list, raising £397m, compared to Q121 when 22 companies listed, raising £5.4bn. There are still encouraging signs that London is taking strides towards becoming a more competitive market, most notably on the private and venture capital side.

Continued outflows from UK equities in April 2022

Data from Calastone show continuing outflows from UK equities, with investors pulling £836m from UK equity focused funds in April, beating the record set in January 2022. Two-thirds of UK focused funds saw outflows, with small- and mid-cap funds bearing the brunt of the selling. ESG focused funds continued to see inflows and UK focused funds with an income bias also fared well. The report had one stark statistic: of the £49bn invested in equities funds since January 2015, no net new money has flowed into UK-focused funds. Initially the negative sentiment around UK equities was a consequence of Brexit, then flows to more attractive (US) growth markets as technology and healthcare boomed through the pandemic. The expected flow back to UK stocks on valuation and exposure to old economy names anticipated in late 2021 vanished by March 2022 with the onset of inflation, rising rates and the invasion.

Outflows attract M&A and venture capital

We made the case in our November 2021 report that the UK was one of the most undervalued markets in the world. The UK has long been out of favour for its mix of value and cyclical names; Susan Noffke, head of UK equities at Schroders, commented in December 2021 that ‘Somebody’s buying UK shares, it’s just not stock market investors at present’. The comment related to a report Schroders published looking at the c 350 constituents of the UK MSCI IMI Index at 31 December 2011. Over the next decade, 112 of these were acquired, with 68 of them acquired by an overseas company. A further 14 delisted for other reasons (eg administration). There has also been a greater focus on the UK from US venture capital firms. The $10.2bn US venture capital investment in high-growth UK companies in 2021 was a record. Sequoia Capital, an early backer of the likes of Apple and Google and which currently has a stake in one-fifth of the world’s unicorns, opened a London office in 2021 citing that the UK and Europe are on the verge of a technology take-off. An argument for the better public market valuations in the US compared to the UK has been the deeper pool of growth funds. Early signs are that this is starting to change.

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